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United States Steel Corporation Reports 2007 Fourth Quarter and Full-Year Results

PRNewswire-FirstCall
PITTSBURGH
(NYSE:X)
01.29.2008

PITTSBURGH, Jan. 29 /PRNewswire-FirstCall/ --

                           Earnings Highlights
  --------------------------------------------------------------------------
  (Dollars in millions except
   per share data)          4Q 2007    3Q 2007    4Q 2006     2007     2006
  --------------------------------------------------------------------------
  Net sales                  $4,535     $4,354     $3,774  $16,873  $15,715
  --------------------------------------------------------------------------
  Segment income from operations
    Flat-rolled                 $53       $170        $31     $390     $600
    U. S. Steel Europe           85        152        182      687      714
    Tubular                      83         74        144      356      631
    Other Businesses             36         37         57       76      129
  --------------------------------------------------------------------------
  Total segment income from
   operations                  $257       $433       $414   $1,509   $2,074
  Retiree benefit expenses      (15)       (46)       (53)    (143)    (243)
  Other items not allocated
   to segments                 (126)       (27)       (20)    (153)     (46)
  --------------------------------------------------------------------------
  Income from operations       $116       $360       $341   $1,213   $1,785
  --------------------------------------------------------------------------
  Net interest and other
   financial costs               44         22         25      105       62
  --------------------------------------------------------------------------
  Income tax provision           31         68          7      218      324
  --------------------------------------------------------------------------
  Net income                    $35       $269       $297     $879   $1,374
    - Per basic share         $0.29      $2.28      $2.51    $7.44   $11.88
    - Per diluted share       $0.29      $2.27      $2.50    $7.40   $11.18
  --------------------------------------------------------------------------

United States Steel Corporation (NYSE: X) reported fourth quarter 2007 net income of $35 million, or $0.29 per diluted share, compared to third quarter 2007 net income of $269 million, or $2.27 per diluted share, and fourth quarter 2006 net income of $297 million, or $2.50 per diluted share. Fourth quarter 2007 net income was reduced by $117 million, or $0.98 per diluted share, due to inventory transition effects and a workforce reduction charge as discussed below.

For full-year 2007, U. S. Steel reported net income of $879 million or $7.40 per diluted share, which was reduced by $158 million, or $1.33 per diluted share, from inventory transition effects, a workforce reduction charge, early debt redemption expense and several discrete tax charges. Full- year 2006 net income was $1,374 million, or $11.18 per diluted share.

U. S. Steel Chairman and CEO John P. Surma said, "This past year was an important period of growth for our company as we completed major acquisitions in both our flat-rolled and tubular businesses and commissioned our new automotive galvanizing line in Europe. We are making steady progress with integration activities on both acquisitions, and we still expect to achieve the anticipated synergies."

The company reported fourth quarter 2007 income from operations of $116 million, compared with income from operations of $360 million in the third quarter of 2007 and $341 million in the fourth quarter of 2006. For the year 2007, income from operations was $1,213 million versus income from operations of $1,785 million for the year 2006.

Other items not allocated to segments in the fourth quarter of 2007 consisted of a $69 million pre-tax charge related to inventory transition effects following the two major acquisitions and a $57 million pre-tax charge resulting from a voluntary early retirement program at U. S. Steel Kosice (USSK). These items decreased fourth quarter 2007 net income by $117 million, or 98 cents per diluted share. In the third quarter of 2007, a $27 million pre-tax charge related to inventory acquired in the Lone Star acquisition was not allocated to segments, and the tax provision included several discrete charges totaling $11 million. These items reduced third quarter 2007 net income by $28 million, or 23 cents per diluted share. In the fourth quarter of 2006, net interest and other financial costs included a $32 million pre-tax charge related to the early redemption of debt. This item and other items not allocated to segments decreased net income by $33 million or 28 cents per diluted share.

Reportable Segments and Other Businesses

Management believes segment income from operations is a key measure to evaluate ongoing operating results and performance. U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $257 million, or $43 per ton, in the fourth quarter of 2007, compared with $433 million, or $78 per ton, in the third quarter of 2007 and $414 million, or $85 per ton, in the fourth quarter of 2006.

Flat-rolled's fourth quarter results were significantly lower than the third quarter and included the operating results of U. S. Steel Canada (USSC) effective October 31. Flat-rolled operated at 82 percent of capability, including only 60 percent for USSC, as we completed a number of blast furnace repair outages, both planned and unplanned, during the quarter. Lower average realized prices compared to the third quarter primarily reflected a shift in product mix to hot-rolled and semi-finished with the USSC acquisition. In addition, production costs increased due mainly to higher raw material, natural gas, outage and modernization-related costs. USSC added 557,000 tons to fourth quarter Flat-rolled shipments under commercial arrangements in place at the time of acquisition. An operating loss was incurred as unplanned blast furnace outages limited shipments and resulted in high unit production costs.

The decrease in fourth quarter 2007 European income from operations compared to the third quarter was mainly due to a decline in euro-based prices as high imports, particularly from China, and high service center inventories pressured spot prices and order rates. Operating rates were curtailed to 79 percent of capability as a result of two planned blast furnace outages. Shipments were reduced by the outages and outbound rail transportation service disruptions late in the quarter. Additionally, raw material and energy costs increased.

Fourth quarter Tubular results improved slightly from the third quarter due mainly to higher average realized prices resulting from a change in product mix, and improved overall cost performance. These were partially offset by lower shipments.

Additional Fourth Quarter 2007 Items

In December 2007, U. S. Steel and the United Steelworkers (USW) agreed that U. S. Steel will provide health care and life insurance benefits to certain former National Steel employees and their eligible dependents under a U. S. Steel insurance plan, using funds that had been accrued based on a provision of the 2003 Basic Labor Agreement. Funds totaling $468 million were contributed to our trust for retiree health care and life insurance in December.

As a result of this agreement, our other postretirement benefits (OPEB) obligation increased by $314 million. While a funding obligation continues through the August 31, 2008 expiration of the 2003 Basic Labor Agreement, the profit-based expense has been eliminated beginning with the fourth quarter of 2007 as reflected in "retiree benefit expenses."

Net interest and other financial costs increased by $22 million in the fourth quarter of 2007 compared to the third quarter, mainly reflecting interest expense resulting from debt incurred to fund the Stelco acquisition.

Our effective tax rate for the year was higher than projected at the end of the third quarter as a result of the inclusion of USSC and a change in the profile of global earnings. As a result, the tax provision in the fourth quarter included approximately $20 million to apply this higher tax rate to income for the prior three quarters.

Outlook

Commenting on U. S. Steel's outlook, Surma said, "We expect first quarter results to continue to reflect the volatile cost and pricing dynamics in our three major segments. Overall, we should be in a good position as 2008 progresses to take advantage of favorable supply side conditions, our expanded product and geographic positions in North America, and our new galvanizing line at USSK."

For Flat-rolled, we expect improvement from fourth quarter results as shipments and operating rates are expected to increase compared to the fourth quarter, with the inclusion of USSC for the full quarter and the completion of the blast furnace projects. Our facilities in Canada have been operating much more reliably. Prices are also expected to be higher as increasing spot market prices will be realized throughout the quarter. In addition, customer commitments in place at USSC at the time of the acquisition are being completed and new commitments consistent with U. S. Steel's commercial policies are being made. We also expect significant cost increases for raw materials, particularly for purchased scrap, coke and alloys.

For U. S. Steel Europe (USSE), we expect higher euro-based prices; and shipments should increase as a result of higher facility availability in the quarter. Escalating raw material costs are expected to partially offset these improvements.

Shipments and prices for the Tubular segment are expected to remain in line with the fourth quarter, and semi-finished steel costs will increase.

Other Businesses will reflect the normal unfavorable seasonal effects of the closing of the Great Lakes for taconite pellet shipments.

Capital expenditures for 2008 are expected to total approximately $940 million.

Total costs for pension plans and OPEB are expected to be approximately $200 million in 2008 compared to $266 million in 2007, primarily due to lower pension expense.

Volatility in net interest and other financial costs could increase going forward as a result of foreign currency accounting remeasurement effects, primarily on a $1.2 billion intercompany loan to a European affiliate, related to the acquisition of USSC. As this intercompany loan is repaid, our exposure will decrease. Also, we expect to mitigate a portion of this volatility with our normal hedging activity.

Common Stock Repurchase Program

We repurchased 295,000 shares of U. S. Steel common stock for $30 million during the fourth quarter, bringing total repurchases to 14.3 million shares for $812 million since the repurchase program was originally authorized in July 2005. As of December 31, 2007, 6.5 million shares remained authorized for repurchase under our stock repurchase program.

This release contains forward-looking statements with respect to market conditions, operating costs, shipments, prices, capital spending and employee benefit costs. Some factors, among others, that could affect market conditions, costs, shipments and prices for both North American operations and USSE include global product demand, prices and mix; global and company steel production levels; plant operating performance; the timing and completion of facility projects; natural gas prices, usage and supply disruptions; availability and prices of purchased coke and other raw materials; changes in environmental, tax and other laws; employee strikes; power outages; and U.S. and global economic performance and political developments. Domestic steel shipments and prices could also be affected by import levels, currency fluctuations and actions taken by the U.S. Government. Economic conditions and political factors in Europe and Canada that may affect USSE's and USSC's results include, but are not limited to, taxation, environmental permitting, nationalization, inflation, currency fluctuations, increased regulation, export quotas, tariffs, and other protectionist measures. Factors that may affect our ability to construct new facilities include levels of cash flow from operations, general economic conditions, business conditions, availability of capital, whether or not assets are purchased or financed by operating leases, receipt of necessary permits and unforeseen hazards such as contractor performance, material shortages, weather conditions, explosions or fires, which could delay the timing of completion of particular capital projects. Factors that may affect the amount of net periodic benefit costs include, among others, changes to laws affecting benefits, pension fund investment performance, liability changes and interest rates. In accordance with "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, cautionary statements identifying important factors, but not necessarily all factors, that could cause actual results to differ materially from those set forth in the forward-looking statements have been included in the Form 10-K of U. S. Steel for the year ended December 31, 2006, and in subsequent filings for U. S. Steel.

A Statement of Operations (Unaudited), Cash Flow Statement (Unaudited), Condensed Balance Sheet (Unaudited) and Preliminary Supplemental Statistics (Unaudited) for U. S. Steel are attached.

The company will conduct a conference call on fourth quarter earnings on Tuesday, January 29, at 3 p.m. EST. To listen to the webcast of the conference call, visit the U. S. Steel web site, http://www.ussteel.com/, and click on the "Investors" button.

For more information on U. S. Steel, visit our web site at http://www.ussteel.com/.

                     UNITED STATES STEEL CORPORATION
                   STATEMENT OF OPERATIONS (Unaudited)
                   -----------------------------------
                                                             Year Ended
                                   Quarter Ended             December 31
                            ----------------------------  -----------------
                            Dec. 31   Sept. 30   Dec. 31
  (Dollars in millions)       2007      2007      2006      2007      2006
  -------------------------------------------------------------------------
  NET SALES                  $4,535    $4,354    $3,774   $16,873   $15,715

  OPERATING EXPENSES (INCOME):
    Cost of sales (excludes
     items shown below)       4,110     3,749     3,223    14,633    12,968
    Selling, general and
     administrative expenses    178       134       146       589       604
    Depreciation, depletion
     and amortization           153       124       102       506       441
    Income from investees        (7)       (7)      (18)      (26)      (57)
    Net gains on disposal of
     assets                      (3)       (7)      (11)      (23)      (13)
    Other (income) loss, net    (12)        1        (9)      (19)      (13)
                              -----     -----     -----     -----     -----
      Total operating
       expenses               4,419     3,994     3,433    15,660    13,930
                              -----     -----     -----     -----     -----
  INCOME FROM OPERATIONS        116       360       341     1,213     1,785
  Net interest and other
   financial costs               44        22        25       105        62
                              -----     -----     -----     -----     -----
  INCOME BEFORE INCOME TAXES
   AND MINORITY INTERESTS        72       338       316     1,108     1,723
  Income tax provision           31        68         7       218       324
  Minority interests              6         1        12        11        25
                              -----     -----     -----     -----     -----
  NET INCOME                     35       269       297       879     1,374
  Dividends on preferred stock   --        --        --        --        (8)
                              -----     -----     -----     -----     -----
  NET INCOME APPLICABLE TO
   COMMON STOCK                 $35      $269      $297      $879    $1,366
                              =====     =====     =====     =====     =====
  COMMON STOCK DATA:
  -------------------------------------------------------------------------
  Net income per share:
    - Basic                   $0.29     $2.28     $2.51     $7.44    $11.88
    - Diluted                 $0.29     $2.27     $2.50     $7.40    $11.18

  Weighted average shares, in thousands:
    - Basic                 117,813   118,086   118,343   118,090   114,918
    - Diluted               118,581   118,755   119,011   118,815   122,918

  Dividends paid per common
   share                       $.20      $.20      $.20      $.80      $.60



                     UNITED STATES STEEL CORPORATION
                     CASH FLOW STATEMENT (Unaudited)
                     -------------------------------
                                                            Year Ended
                                                            December 31
                                                         -----------------
  (Dollars in millions)                                     2007      2006
  ------------------------------------------------------------------------
  Cash provided from operating activities:
    Net income                                         $     879 $   1,374
    Depreciation, depletion and amortization                 506       441
    Pensions and other postretirement benefits              (157)     (209)
    Deferred income taxes                                     53        (3)
    Net gains on disposal of assets                          (23)      (13)
    Changes in: Current receivables                          238       (93)
                Inventories                                  468      (109)
                Current accounts payable and
                 accrued expenses                           (441)      274
    Other operating activities                               183        19
                                                          ------    ------
      Total                                                1,706     1,681
                                                          ------    ------
  Cash used in investing activities:
    Capital expenditures                                    (675)     (612)
    Acquisition of Lone Star Technologies,                (1,990)       --
    Inc., net of cash received
    Acquisition of Stelco Inc., net of cash received      (2,036)       --
    Disposal of assets                                        42        26
    Other investing activities                                23        (4)
                                                          ------    ------
      Total                                               (4,636)     (590)
                                                          ------    ------
  Cash used in financing activities:
    Borrowings and repayments of debt, net                 2,103      (607)
    Common stock issued                                       18        33
    Common stock repurchased                                (117)     (442)
    Dividends paid                                           (95)      (77)
    Change in bank checks outstanding                        (13)      (49)
    Other financing activities                                (5)      (13)
                                                          ------    ------
      Total                                                1,891    (1,155)
                                                          ------    ------
  Effect of exchange rate changes on cash                     18         7
                                                          ------    ------
  Total net cash flow                                     (1,021)      (57)
  Cash at beginning of the year                            1,422     1,479
                                                          ------    ------
  Cash at end of the year                              $     401 $   1,422
                                                          ======    ======



                     UNITED STATES STEEL CORPORATION
                   CONDENSED BALANCE SHEET (Unaudited)
                   -----------------------------------

                                                   Dec. 31        Dec. 31
  (Dollars in millions)                               2007           2006
  -----------------------------------------------------------------------
  Cash and cash equivalents                           $401         $1,422
  Receivables, net                                   2,077          1,799
  Inventories                                        2,269          1,604
  Other current assets                                 259            371
                                                   -------        -------
  Total current assets                               5,006          5,196
  Property, plant and equipment, net                 6,688          4,429
  Investments and long-term receivables, net           696            336
  Prepaid pensions                                     733            330
  Intangible assets, net                               419             --
  Goodwill                                           1,676             --
  Other assets                                         382            295
                                                   -------        -------
  Total assets                                     $15,600        $10,586
                                                   =======        =======
  Accounts payable                                   1,712          1,313
  Payroll and benefits payable                         972          1,028
  Short-term debt and current maturities of
   long-term debt                                      110             82
  Other current liabilities                            168            279
                                                   -------        -------
  Total current liabilities                          2,962          2,702
  Long-term debt                                     3,147            943
  Employee benefits                                  3,212          2,174
  Other long-term liabilities                          690            364
  Minority interests                                    58             38
  Stockholders' equity                               5,531          4,365
                                                   -------        -------
  Total liabilities and stockholders' equity       $15,600        $10,586
                                                   =======        =======
  -----------------------------------------------------------------------



                     UNITED STATES STEEL CORPORATION
             PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
             -----------------------------------------------

                                   Quarter Ended               Year Ended
                               ----------------------------    December 31
                               Dec. 31   Sept. 30   Dec. 31    ------------
  (Dollars in millions)          2007       2007      2006     2007    2006
  -------------------------------------------------------------------------
  INCOME (LOSS) FROM OPERATIONS
  Flat-rolled (a)                 $53       $170       $31     $390    $600
  U. S. Steel Europe               85        152       182      687     714
  Tubular (b)                      83         74       144      356     631
  Other Businesses (c)             36         37        57       76     129
                                -----      -----     -----    -----   -----
  Segment Income from Operations  257        433       414    1,509   2,074
  Retiree benefit expenses (d)    (15)       (46)      (53)    (143)   (243)
  Other items not allocated to
   segments:
    Flat-rolled inventory
     transition effects           (58)        --        --      (58)     --
    Tubular inventory transition
     effects                      (11)       (27)       --      (38)     --
    Out of period adjustments      --         --       (15)      --     (15)
    Workforce reduction charges   (57)        --        --      (57)    (21)
    Loss from sale of certain
     assets                        --         --        (5)      --      (5)
    Asset impairment loss          --         --        --       --      (5)
                                -----      -----     -----    -----   -----
      Total Income from
       Operations                $116       $360      $341   $1,213  $1,785

  CAPITAL EXPENDITURES
  Flat-rolled (a)                 $79       $121      $127     $319    $274
  U. S. Steel Europe               86         52        49      215     211
  Tubular (b)                      10         10         2       23       4
  Other Businesses                 40         27        37      118     123
                                -----      -----     -----    -----   -----
    Total                        $215       $210      $215     $675    $612

  -------------------------------------------------------------------------

  (a) Includes the results of the businesses acquired from Stelco Inc. as of
      October 31, 2007, excluding the iron ore and real estate interests.
  (b) Includes the results of the businesses acquired from Lone Star
      Technologies, Inc. as of June 14, 2007.
  (c) Includes the results of the iron ore and real estate interests
      acquired from Stelco Inc. as of October 31, 2007.
  (d) Includes certain profit-based expenses for U. S. Steel retirees and
      former National employees pursuant to provisions of the 2003 labor
      agreement with the United Steelworkers.



                     UNITED STATES STEEL CORPORATION
             PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
             -----------------------------------------------

                                   Quarter Ended               Year Ended
                               ----------------------------    ------------
                               Dec. 31   Sept. 30   Dec. 31    December 31
  (Dollars in millions)          2007       2007      2006     2007    2006
  -------------------------------------------------------------------------
  OPERATING STATISTICS
    Average realized price:
     ($/net ton) (a)
      Flat-rolled (b)            $627       $643      $648     $642    $634
      U. S. Steel Europe          752        738       665      720     608
      Tubular (c)               1,299      1,282     1,523    1,335   1,499
    Steel Shipments: (a)(d)
      Flat-rolled (b)           4,146      3,601     3,078   14,534  14,180
      U. S. Steel Europe        1,385      1,486     1,549    6,139   6,261
      Tubular (c)                 427        473       271    1,435   1,191
                               ------     ------    ------   ------  ------
        Total Steel Shipments   5,958      5,560     4,898   22,108  21,632
    Intersegment Shipments: (d)
      Flat-rolled to Tubular      314        260       176      912     858
    Raw Steel-Production: (d)
      Flat-rolled (b)           4,681      4,328     3,270   16,838  16,355
      U. S. Steel Europe        1,467      1,661     1,772    6,792   7,062
    Raw Steel-Capability
     Utilization: (e)
      Flat-rolled (b)            82.0%      88.5%     66.9%    83.3%   84.3%
      U. S. Steel Europe         78.6%      89.0%     94.7%    91.8%   95.4%
    Domestic iron ore
     production (d)             5,679      5,323     5,144   20,846  22,063
    Domestic coke
     production (d)             1,511      1,382     1,393    5,558   5,814
  -------------------------------------------------------------------------

  (a) Excludes intersegment shipments.
  (b) Includes the results of the businesses acquired from Stelco Inc. as of
      October 31, 2007, excluding the iron ore and real estate interests.
  (c) Includes the results of the businesses acquired from Lone Star
      Technologies, Inc. as of June 14, 2007.
  (d) Thousands of net tons.
  (e) Based on annual raw steel production capability of 19.4 million net
      tons for Flat-rolled prior to October 31, 2007 and 24.3 million net
      tons thereafter, and 7.4 million net tons for U. S. Steel Europe.

SOURCE: United States Steel Corporation

CONTACT: Media, John Armstrong, +1-412-433-6792, or Investors-Analysts,
Nick Harper, +1-412-433-1184, both of United States Steel Corporation

Web site: http://www.ussteel.com/

Company News On-Call: http://www.prnewswire.com/comp/929150.html

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